The term human capital refers to the economic value of a worker’s experience and skills such as assets like education, training, intelligence, skills, health, and other things employers place in high value such as loyalty and punctuality. In other words, human capital is an intangible asset or quality that isn’t (and can’t be) listed on a company’s balance sheet. Undoubtedly, human capital being put to use can increase productivity and thus profitability in any organization or company.
An organization is often said to be as good as the people in the organization, therefore, the more investment a company makes in its employees, the chances of its productivity and success become higher, which is why human capital is so important to a company
On the other hand, Venture capital is a form of private equity funding that is generally provided to startups and companies at the budding or growing stage. Venture capital is often offered to firms that show significant growth potential and revenue creation, thus generating potential high returns.
It can also be seen as financing or financial aid given to startup companies and small businesses that have the potential to generate high rates of growth and above-average returns, often fueled by innovation or by carving out a new industry niche.
The funding for this type of financing usually comes from wealthy investors, investment banks, and specialized venture capital funds. On rare occasions, the aid or investment is not always financial as it can be offered via technical or managerial expertise, but most times the investment come as finance.
Investors providing funds have a strong belief that the budding or growing company will deliver and will not deteriorate, however, the tradeoff is potentially above-average returns if the company delivers on its potential.
For newer companies or companies with a short operating history (two years or less), venture capital funding is still necessary for raising the capital needed to sustain the company for a while especially if the company does not have access to capital markets, and bank loans, or other debt instruments.
Venture capital effect on human capital
Provides Risk Management Support
Obtaining venture capital can help employers and employees manage the risk that comes with starting a business. Venture capital also provides an experienced team who will not only oversee growth and operations in the company but also ensure that these new startups avoid major issues in their business.
The rate of failure for startups is alarming especially in their first two years of starting, however, having a partner or investor with experience in helping startups succeed can improve the odds of making a good decision.
Provides Experienced Leadership and Advice
Starting a business comes with a lot of challenges and issues and one of the reasons most startups fold after a while is because they didn’t have access to experienced leadership and advice in their field. However, venture capital provides startups with experienced individuals in their field, these individuals often have experience scaling a company, solving day-to-day and longer-term problems, and monitoring financial performance. This makes them valuable leadership resources for the companies in which they are invested.
Networking Opportunities are Provided
When you’re focused on your business alone, there isn’t much time to network with people that can help your business grow. However, partners at a venture capital firm may spend up to 50% of their time building their network to assist the companies they invest in. this act alone grants you access to a network that can help you forge new partnerships, build out your clients, hire key employees, and raise future rounds of funding.
Provides assistance with Hiring and Building a Team
Venture capital firms do not only provide new companies with finance, they also guide these companies through the process of hiring the right individuals(human capital) and ensure that these new companies build a strong team for the growth of the business. In addition, the team you need to start a company and the team you need to scale are often not the same, and venture capital firms can help get key people in place at the company to help you grow.Featured Image Source: Researchgate
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